Juniors need `fair taxation’ to meet exploration targets

The British Columbia and Yukon chamber of Mines has been monitoring mineral exploration expenditures in British Columbia and the Yukon for at least 30 years. During this period, metal exploration expenditures have increased to $169 million in 1989 from $5 million in 1960. Today British Columbia, like Canada, is at a mining crossroads. Declining metal reserves and now declining metal exploration expenditures warrant an examination of exploration expenditures during the 1970s and 1980s to find out where we have been and where we should be going. An examination of major and junior mining companies’ annual exploration expenditures in British Columbia and the Yukon during the 1970s and 1980s shows some remarkable consistencies. If oil and gas metal exploration expenditures are removed, junior mining companies consistently accounted for 15-20% of total expenditures for the 1974-1982 period with major mining companies accounting for the remaining 80-85%.

With the rise in flow-through share financings, the junior mining company share rose steadily, reaching a high of 70% in 1988. The elimination of MEDA was largely responsible for the junior mining company share decline in 1989 to 47% in British Columbia and 81% in the Yukon. Further declines can be expected with the cancellation in 1990 of the short-lived Canadian Exploration Incentive Program (CEIP).

The high percentage in 1989 of junior mining companies’ exploration expenditures in British Columbia as opposed to the Yukon is largely due to the fact that in 1989, 18 junior mining companies spent $61 million mostly on well-advanced British Columbia projects. As these projects enter the development stage leading to production or are put on the shelf, future total exploration expenditures can be expected to decline.

British Columbia requires, as does Canada, a base level of exploration no less than what was recorded for 1989 if enough new metal reserves are to be discovered to replace our rapidly depleting mines. The Yukon requires a much higher level of exploration expenditure than was carried out in 1989 to meet the demand for new metal mines.

The decrease in the number of major mining companies during the past 30 years combined with the disappearance of the 25% of exploration expenditures previously provided by oil and gas companies means that the pre-1982 80-to-20 ratio of exploration expenditure between majors and juniors is not viable today if we are to replace depleting reserves.

If juniors had increased their expenditures to reach a 50-50 ratio in 1989 in British Columbia and the Yukon, total exploration expenditures would have been right on target — $160 million and $30 million respectively. Similarly, total exploration expenditures in Canada would have been slightly more than $1 billion.

The only way this new ratio can be achieved is to provide a greater incentive for the individual to invest in junior mining companies. The 50/50 ratio can be achieved if the federal government would simply put into effect “fair taxation” whereby Revenue Canada would drop the cost-base and Cumulative Net Investment Loss (CNIL) tax rules.006 Jack Patterson is general manager of the British Columbia and Yukon Chamber of Mines.